NAME:______________________________________________________SCORE:______RATING:______ 1. In “auditing” accounting data, the concern is with a. determining whether recorded information properly reflects the eco econom nomic ic events events that that occurred occurred during during the acc accoun ountin ting g period b. determining if fraud has occurred c. determining if taxable income has been calculated correctly d. analyzin analyzing g the financia financiall informa informatio tion n to be sure that it complies with government requirements 2. Which of the following statements is not true? a. the criteria by which an auditor evaluates the information under under audit audit may vary depend depending ing on the informa information tion being audited b. the the crite criteria ria used used by an exter externa nall audit auditor or to evalu evaluat ate e publi publish shed ed finan financi cial al stat statem emen ents ts are gene genera rally lly acce accept pted ed accounting principles c. the primary purpose of a compliance audit is to determine whet whethe herr the the overa overall ll finan financia ciall stat statem emen ents ts are stat stated ed in accordance with generally accepted accounting principles d. information risk increases as business organization become larger 3. A compreh comprehens ensive ive and constru constructi ctive ve examin examinatio ation n of the organizational structure of a company, institution or branch of gove govern rnme ment nt or any any comp compon onen entt ther thereo eof, f, its its plan plans s and and objectives, its means of operation and its use of human and physic physical al faciliti facilities es to reveal reveal defect defects s or irregula irregulariti rities es and to indicate possible improvements is called a. financial audit b. management audit c. government audit d. balance sheet audit e. internal audit 4. A primary purpose of operational auditing standards is to provide a. a means of assurance that internal controls are operating effectively b. aid to the independent auditor in conducting the audit of financial statements c. the the result results s of inter interna nall exam examin inat ation ions s of finan financia ciall and and accounting matters to the company’s top-level management d. a meas measure ure of mana manage geme ment nt perfo perform rman ance ce in meet meetin ing g organizational goals 5. Inter ntern nal audi auditi ting ng is con conside sidere red d organization’s: a. accounting system b. internal control procedures c. control environment d. external controls
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8. Which of the following is not one of the three phases in an operational audit? a. planning b. review of the internal control structure c. evidence accumulation and evaluation d. reporting and follow-up 9. To maxim maximize ize their their effec effectiv tiven enes ess, s, department should not report to the a. controller b. president c. chairperson of the board of directors d. board of directors
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10. 10. When When CPA CPA firm firms s do an audi auditt of hist histor oric ical al fina financ ncia iall statement statements, s, part of the audit usually consists of identifying identifying operational problems and making recommendations that may benefit benefit the audit client. client. The recommend recommendations ations can be made orally but they are typically made by use of a a. letter of representation b. engagement letter c. management letter d. client letter 11. The two most important qualities for an operational auditor are a. independence and competence b. competence and technical training c. personality and appearance d. academic background and sufficient experience 12. Independence of internal auditors is not enhanced by a. having the internal audit department report to the board of directors b. having government auditors report to a level above the operating departments c. drafting procedures and designing accounting systems d. having the internal audit department report to the president 13. Which of the following is not one of the broad categories of operational audits? a. functional audits b. organizational audits c. single act audits d. special assignment audits
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6. Operational auditing does not focus on a. efficiency b. economy c. effectiveness d. compliance 7. Which of the following statements is not correct? a. objec objecti tivit vity y requi requires res that that inte intern rnal al audit auditor ors s have have an independent mental attitude b. internal auditors should be independent of the activities they audit c. it is acceptable for internal auditors to recommend changes in operati operations ons and to instal installl and implement implement the operat operating ing systems, as long as they do not have the responsibility for operating them throughout the year d. the internal auditor should not be responsible for correcting deficiencies when ineffective or inefficient operations are found
14. Which of the following is not one of the major differences between financial and operational auditing? a. the financial financial audit is oriente oriented d to the past past wherea whereas s an operational audit concerns performance for the future b. the financial audit report is distributed to many readers whereas the operational audit report goes to a few managers c. financial audits are limited to matters that directly affect the financi financial al statem statement ents s wherea whereas s operati operationa onall audits audits cover cover any aspect of efficiency and effectiveness. d. financial audits deal with the information on the financial statements whereas operational audits are concerned with the information in the ledgers 15. 15. An audi auditt desi design gned ed to eval evalua uate te the the effi effici cien ency cy and and effectiveness of an organization or some part thereof would not come under the title of a. performance audit b. management audit c. operational audit d. compliance audit 16. The risk that that the audit audit will fail to uncove uncoverr a materia materiall misstatement is eliminated a. if client has good internal control b. if client follows financial reporting standards
c. when the auditor has complied with Philippine Standards on Auditing (PSA) d. under no circumstances 17. In rare cases auditors have been held liable for criminal acts. A criminal conviction against an auditor can result only when it is demonstrated that the auditor a. was negligent b. was grossly negligent c. intended to deceive or harm others d. caused a financial loss to an innocent third party 18. The following are the elements of an assurance engagement except a. suitable criteria b. an appropriate subject matter c. a two-party relationship involving a practitioner and intended users d. sufficient appropriate evidence 19. Which of the following is not an assurance engagement? a. compilation b. financial statements audit c. information reliability services d. reviews of prospective financial statements 20. The risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated. a. assurance engagement risk b. materiality risk c. non-detection risk d. reasonable assurance risk 21. Which of the following is not an element of an assurance engagement? a. an appropriate subject matter b. suitable criteria c. sufficient appropriate evidence d. substantial engagement fee 22. Which of the following characteristics need not be exhibited in determining the identified suitability of criteria of a subject matter in an assurance engagement? a. completeness b. relevance c. understandability d. substantial acquisition cost 23. An attitude of professional skepticism means that the practitioner a. should assess critically with a questioning mind the validity of evidence obtained b. should recognize that circumstances may exist that can cause the subject matter information to be materially misstated c. is alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party d. is expected to eliminate the risk of overlooking suspicious circumstances, of over generalizing when drawing conclusions from observations and of using faulty assumptions in determining the nature, timing and extent of evidence gathering procedures and evaluating the results thereof 24. The subject matter of an assurance engagement can take the following forms except a. historical or prospective financial statements b. performance of an entity that could indicate efficiency and effectiveness c. the entity’s internal control d. evaluation of a capital investment proposal
25. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the a. partner assigned to the audit engagement b. management of the company c. auditor in charge of the field work d. Securities and Exchange Commission 26. This refers to the audit procedures that, in the auditor’s judgment and based on the PSAs are deemed appropriate in the circumstances to achieve the objective of an audit a. analytical procedures b. scope of an audit c. audit sampling d. documentation 27. Which of the following is not an assurance engagement? a. information system reliability service b. business performance measurement c. risk assessment service d. management consulting service 28. Which of the following criteria is unique to the auditor’s attest function? a. general competence b. familiarity with the particular industry of which the auditor’s client is part c. due professional care d. independence 29. Which of the following may not be an appropriate form of the subject matter of an assurance engagement? a. historical financial information b. systems and processes c. behavior d. non-physical characteristics of a facility 30. An audit independence issue might be raised by the auditor’s participation in management advisory services engagements. Which of the following statements is most consistent with the profession’s attitude toward this issue? a. information obtained as a result of a management advisory services engagement is confidential to that specific engagement and should not influence performance of the attest function b. the decision as to loss of independence must be made by the client based upon the facts of the particular case c. the auditor should not make management decisions for the audit client d. the auditor who is asked to review management decisions is also competent to make these decisions and can do so without loss of indepence 31. Which of the following is not a component of engagement risk? a. control risk b. inherent risk c. business risk d. detection risk 32. Auditing is based on the assumption that financial data are a. in conformity with appropriate criteria b. verifiable c. presented fairly d. consistently applied 33. The accounting firm should establish policies and procedures assigned to promote an internal culture based on the recognition that quality is essential in performing engagements. This may be communicated through the following means except a. training seminars b. formal and informal dialogue
c. publication in PICPA newsletter d. mission statements 34. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to a. make inquiries of the proposed client’s legal counsel b. review financial statements of the proposed client c. make inquiries of previous auditors d. review the personnel practices of the prososed 35. Engagement risk is influenced by the risks associated with the following except a. nature and form of the subject matter b. nature and form of the criteria applied to the subject matter c. nature and extent of the process used to collect and evaluate evidence d. unreasonably low professional fee 36. A review of any part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n) a. audit of financial statements b. compliance audit c. operational audit d. production audit 37. An auditor should not render a report on a. the achievability of forecasts b. client internal control c. management performance d. quarterly financial information
38. Santos, a CPA not in public practice, is an employee in the internal audit department of Tower’s Company. The management has asked Santos to perform examinations of potential acquisitions and to express an opinion thereon. Santos will use the reports for internal purposes and to show to its bankers in accordance with certain loan agreements. How should Santos sign the report? a. Santos, CPA b. Santos, Internal Auditor c. Santos, CPA (Internal Auditor) d. Santos, Internal Auditor (CPA) 39. A CPA should not undertake a management advisory service engagement that includes continued participation through implementation, unless a. upon implementation of a new study and evaluation of the system of internal control is performed b. upon implementation, the client’s personnel will have the knowledge and ability to adequately maintain and operate such systems as may be involved c. the CPA accepts overall responsibility for implementation of the chosen course d. the CPA acquires an overall knowledge of the client’s business that is equivalent to that possessed by management 40. The risk that the audit will fail to uncover a material misstatement is eliminated a. if client has good internal control b. if client follows financial reporting standards c. when the auditor has complied with Philippine Standards on Auditing d. under no circumstances
NAME:______________________________________________________SCORE:______RATING:______ 1. Auditing standards differ from auditing procedures in that procedures relate to a) Measure of performance. b) Audit principles. c) Acts to be performed. d) Audit judgments. 2. The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the a) Validity of the income statement. b) Determination of fair presentation of financial statements. c) Improvement of accounting systems. d) Detection of irregularities. 3. The work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that a) Early appointment of the auditor is advantageous to the auditor and the client. b) Acceptance of an audit engagement after the close of the client's fiscal year is generally not permissible. c) Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion. d) Performance of substantial parts of the examination is necessary at interim dates. 4. An independent audit aids in the communication of economic data because the audit a) Assures the reader of financial statements that any fraudulent activity has been corrected. b) Confirms the accuracy of management's financial representations. c) Lends credibility to the financial statements. d) Guarantees that financial data are fairly presented. 5. Which of the following best describes the reason why an independent auditor reports on financial statements? a) A management fraud may exist and is more likely to be detected by independent auditors. b) Different interests may exist between the company preparing the statements and the persons using the statements. c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work. d) Poorly designed internal control may exist. 6. A CPA, while performing an audit, strives to achieve independence in appearance in order to a) Reduce risk and liability. b) Comply with the generally accepted standards of field work. c) Become independent in fact. d) Maintain public confidence in the profession. 7. The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on a) The competence of management in accounting matters which is implied by whether the opinion is qualified or not. b) The conformity of the statements with the book of account. c) The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year. d) The fairness with which the financial statements present cash flows and results of operations. 8. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the a) Partner assigned to the engagement. b) Auditor in charge of field work. c) Management of the company. d) Securities & Exchange Commission.
9. Due professional care requires a) A critical review of the work done at every level of supervision. b) The examination of all corroborating evidence available. c) The exercise of error free judgment. d) A study and review of the I/C's that include tests of controls 10. The independent audit is important to readers of F/S because it a) Determines the future stewardship of the management of the company whose financial statements are audited. b) Measures and communicates financial and business data in the F/S. c) Involves the objective examination of, and reporting on, management-prepared statements. d) Reports on the accuracy of all information in the F/S. 11. Independent auditing can best be described as a) A branch of accounting. b) A discipline that attests to the results of accounting and other functional operations and data. c) A professional activity that measures and communicates financial and business data. d) A regulatory function that prevents the issuance of improper financial information. 12. What is the meaning that requires the auditor to be independent? a) The auditor must be without bias with respect to the client under audit. b) The auditor must adopt a critical attitude during the audit. c) The auditor's sole obligation is to third parties. d) The auditor may have a direct ownership interest in the client's business if it is not material. 13. The primary purpose of a management advisory services engagement is to help the client a) Become more profitable by relying upon the CPA's existing personal knowledge about the client's business. b) Improve the use of its capabilities and resources to achieve its objectives. c) Document and quantify its future plans without impairing the CPA's objectivity or allowing the CPA to assume the role of management. d) Obtain benefits that are guaranteed implicitly by the CPA. 14. Operational auditing is primarily oriented toward a) Future improvements to accomplish the goals of management. b) The accuracy of data reflected in management's financial records. c) The verification that a company's financial statements are fairly presented. d) Past protection provided by existing internal control. 15. Because an examination is influenced by the possibility of material errors, the auditor should conduct the examination with an attitude of a) Professional responsiveness. b) Conservative advocacy. c) Objective judgment. d) Professional skepticism. 16. The exercise of due professional care requires that an auditor a) Use error-free judgment. b) Consider the internal control structure, including tests of controls. c) Critically review the work done at every level of supervision. d) Examine all corroborating evidence available.
17. CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that a) Employees promoted possess the appropriate characteristics to perform competently. b) Personnel will have the knowledge required to fulfill responsibilities assigned. c) The extent of supervision and review in a given instance will be appropriate. d) All of the above are reasons. 18. The least important evidence of a CPA firm's evaluation of its system of QC would concern the CPA firm's policies and procedures for a) Employment (hiring). b) Confidentiality of audit engagements. c) Assigning personnel to audit engagements. d) Determination of audit fees. 19. A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to a) Enable the auditor to attest to the integrity or reliability of a client. b) Comply with the quality control standards established by regulatory bodies. c) Minimize the likelihood of association with clients whose management lacks integrity. d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements. 20. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to a) Make inquiries of the proposed client's legal counsel. b) Review financial statements of the proposed client. c) Make inquiries of previous auditors. d) Review the personnel practices of the proposed client. 21. Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with a) Technical training that assures proficiency as an auditor. b) Professional education that is required in order to perform with due professional care. c) Knowledge required to fulfill assigned responsibilities and to progress within the firm. d) Knowledge required in order to perform a peer review. 22. In pursuing a CPA firms' quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy? a) Acceptance of client. b) Supervision. c) Independence. d) Monitoring. 23. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as a) Emphasizing independence of mental attitude in firm training programs and in supervision and review of work. b) Prohibiting employees from owning stock of public companies. c) Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms. d) Assigning employees who may lack independence to research positions that do not require participation in field audit work.
24. Which of the following is an element of quality control? a) Supervision b) Inspection c) Personnel management d) Consultation 25. In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of a) A file of minutes of staff meetings. b) Updated personnel files. c) Documentation to demonstrate compliance with its policies and procedures. d) Documentation to demonstrate compliance with peer review directives. 26. One element of the personnel management quality control standard is professional development. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to a) Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms. b) Establish, in fact as well as in appearance, that staff accountants are increasing their knowledge of accounting and auditing matters. c) Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures. d) Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities. 27. Which of the following is a quality control standard? a) Peer review. b) Administrative control. c) Engagement performance. d) Time studies. 28. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client? a. The SA has no responsibility to contact the PA. b. The SA should obtain permission from the prospective client to contact the PA. c. The SA should contact the PA regardless of whether the prospective client authorizes contact. d. The SA need not contact the PA if the successor is aware of all available relevant facts. 29. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of a) Quality control. b) Due professional care. c) Supervision and review. d) Field work. 30. Quality control for a CPA firm as referred to in Statements on Quality Control Standards, applies to a) Auditing services only. b) Auditing and management advisory services. c) Auditing and tax services. d) Auditing and accounting and review services. 31. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to a) Determine appropriate pricing of the audit. b) Determine the integrity of management. c) Determine the beginning balances of the current year's financial statements.
d) Establish consistency in application of GAAP between years.
d. Understanding as to the reasons for the change of auditors.
32 . Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should a. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination. c. Not communicate with the predecessor auditor because this would, in effect, be asking the auditor to violate the confidential relationship between auditor and client. d. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.
34. Dela Cruz, a non-CPA, has a law practice. Dela Cruz has recommended one of his clients to Gomez, CPA. Gomez has agreed to pay Dela Cruz 10% of the fee for services rendered by Gomez to Dela Cruz client. Who, if anyone, is in violation of the Code of Ethics? a. both Dela Cruz and Gomez b. neither Dela Cruz nor Gomez c. only Dela Cruz d. only Gomez
33. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's a. Awareness of the consistency in the application of GAAP between periods. b. Evaluation of all matters of continuing accounting significance. c. Opinion of any subsequent events occurring since the predecessor's audit report was issued.
35. Richard, CPA performs accounting services for Tower Corporation. Tower wishes to offer its shares to the public and asks Richard to audit the financial statements prepared for registration purposes. Richard refers Tower to Cruz, CPA, who is more competent in the area of registration statements. Cruz performs the audit of Tower’s financial statements and subsequently thanks Richard for the referral by giving Richard a portion of the audit fee collected. Richard accepts the fee. Who, if anyone, has violated professional ethics? a. only Richard b. both Richard and Cruz c. only Cruz d. neither Richard nor Cruz
